Following the news that Macy’s will close 100 stores in early 2017, Wall Street and the pundits gave thumbs-up to the move. After all, everyone agrees that the U.S. economy is “over-storied.”
But while closing 15% of Macy’s stores may help its balance sheet, the move is going to result in collateral damage that could have far-reaching consequences.
Full disclosure: I haven’t done any specific research around the Macy’s decisions, but as a trained strategic analyst, I see potential for much bigger trouble on the horizon. These are the issues I would be focused on, if I were working for another retailer, manufacturer or real estate company that has skin in the game … and I think we all do!
Of course, Macy’s employees, both in those stores and quite a few at headquarters, will lose their jobs, but to date Macy’s hasn’t announced the number of jobs affected. But their latest annual report puts the number of employees just under 160,000, so we can surmise some 20,000 people will be impacted.
Product Providers Will Lose Orders
Estee Lauder, Ralph Lauren, Calvin Klein, Carter’s, Nautica, Michael Kors and the hundreds of other companies that provide product in those 100 Macy’s stores will lose valuable orders. Of course, these Macy’s stores have been underperforming so their orders are not as vital to the product companies, but underperforming or not, any Macy’s store requires a lot of product to fill its shelves.
Now let’s widen the circle:
Malls Will Fold
Today there are some 60 U.S. malls on the brink of closing, according to Green Street Advisors. This Macy’s news could well be the nail in the coffin for most of them, along with quite a few others thatsimply won’t be able to fill the huge gap left by an anchor Macy’s store closing.
And since in business the 80/20 rule typically holds, that could well mean up to 80 malls will fold, maybe not all in 2017, but soon.
Other Retailers in Malls Will Shutter
And since all the nation’s malls are filled with all the same stores, that will mean those stores will be closing, too, along with their product suppliers losing orders.
The number of retail jobs that will ultimately be lost could be staggering.CNN Money reports that through August 2016 alone, some 44,000 retail employees have been laid off. That number will likely explode next year.
Local Economies Will Suffer
Across the country, there are only about 100 MSAs (metropolitan statistical areas) with over a half-million residents. Even if half that number of MSAs are impacted with a mall closure, it will mean a significant hit to many regions.
Result: Lost jobs in the malls, lost jobs for businesses and services that support those malls or depend on malls for business, and reduced family incomes, meaning other local businesses will suffer. It will add up to more economic bad news for the regions impacted.
Historically, the U.S. economy cycles in and out of recessions every 10 years or so. And today we are certainly due for another one, especially since the recovery from the last recession has been historically weak.
The question is whether the nation’s economy can really absorb such a major blow to the local economies in 50 regions without it rippling throughout the entire economy? I’m no economist, but I think the answer is no!
So while the Wall Street investment community and pundits praise Macy’s decision, I think rather we all should be worried, very worried.